So Many Risks – Has China Become Uninvestable?
Every investor in Chinese equities knows there is a major problem, besides the obvious – a regime that rules arbitrarily under the guise of the “people.” The real shadow is Taiwan. The Russia/Ukraine war showed us what happens when a major economy gets cut off from global markets – popular stocks like Gazprom, Sberbank, Lukoil went from normal tickers in Western portfolios to worthless letters on an app within the blink of an eye.
Could the same happen if China were to move on Taiwan? Unfortunately, the answer is yes. The U.S. and its allies would respond with harsh sanctions, and that could very well include delisting Chinese companies from Western exchanges. At the same time, Beijing itself could slam the door on foreign investors, shutting down access to its domestic stock exchanges in retaliation. That’s not a fantasy scenario. It already happened before – remember when China cracked down on its own tech firms, sending U.S. investors running for the exits. Add in the ADR structure (U.S.-listed shares are technically not ownership of the underlying company, but claims on a Cayman shell), and you see the fragility of holding these positions. If politics breaks, investors get wiped out, plain and simple. And even from the U.S. side, Trump officials have already floated delisting Chinese stocks from American exchanges.
BYD – Interesting Business, Wrong Country
Now, why do I still keep an eye on BYD? For me, it’s one of the most compelling companies in China: a dominant EV player, vertically integrated, and with real technology that arguably surpassed Tesla years ago. They keep breaking records with their affordable hypercar brand Yangwang, exports are rising, and the government clearly wants this company to succeed. But, as history shows, that support could change in a heartbeat.
In many ways, BYD represents the best of China’s economy: execution, scale, and government tailwinds. But here’s the problem: even the best business model won’t save shareholders if markets collapse due to geopolitics. Just like Lukoil could have been a fantastic oil major until sanctions turned it radioactive, BYD could face the same fate if a Taiwan crisis spirals. The stock could go to zero in foreign hands, regardless of fundamentals.
And yes, there are other uncertainties surrounding Chinese stocks, including blurry, nontransparent reporting methods. Nobody can objectively tell whether BYD – or any other company, for that matter – is defrauding investors or running something shady. But let’s emphasize again: The biggest risk is that Chinese companies are at the mercy of Xi Jinping and his communist friends. That’s enough for me to stay away from these stocks as long as the market faces this kind of geopolitical uncertainty.
